House of Commons - Foreign Affairs

Select Committee on Foreign Affairs Second Report

3 Efficiency and effectiveness

30. In August 2004, the FCO asked Collinson Grant Ltd to conduct phase 2 of a study to examine its efficiency, effectiveness and control of costs. Phase 1 had consisted of a pilot project carried out in June and July 2005. Collinson Grant submitted an initial report of its phase 2 study on 19 November and the full report was produced on 14 January 2005.[30] The cost of the phase 2 study was £367,000 plus expenses.[31] As we have noted above, the report remained unpublished until July, following pressure from a member of this Committee.

31. The methodology adopted by Collinson Grant is described in detail in their report. In summary, the consultants surveyed 1,882 staff in the United Kingdom, 230 United Kingdom-based staff overseas and 595 locally-engaged staff. The response rate was 89% from staff in the United Kingdom and 93% from those overseas. Crucially, there was a poor response rate from the Finance Directorate and from Estates Services. Senior managers at one of the largest Posts, Paris, failed to co-operate fully. Other senior managers failed to collaborate with Collinson Grant. This in our view should attract the severest censure, particularly when one has regard for the considerable public expenditure involved in the report's preparation. Nevertheless, Collinson Grant had sufficient confidence in their data to draw some strong conclusions. The executive summary of their report is reproduced in full here:

We have analysed the work of 2,934 employees, using a consistent framework of Processes, Activities and Tasks, which was thoroughly tested before the survey.
These data on the application of effort have been supplemented by a thorough review of comparative costs at Posts, by an analysis of the organisational structure, and by the development of an overall model for the FCO's costs.
Wherever possible, these investigations have been undertaken in partnership with the staff of the FCO. There have been very many opportunities to observe working practices, to discuss the opportunities for improvement, and to review current initiatives for efficiency savings.
We have identified potential opportunities for an annual reduction in costs of £66.1 million by the end of 2005, the full benefits of which would be realised in 2006/2007. This would remove 533 positions based in the UK, 427 UK-based positions overseas, and 307 local staff positions.

It is not realistic to assume that all the potential savings could be realised. Accordingly, we have reassessed each element and proposed a revised 'Target' of £48.0m, 73% of the opportunity.
The savings that we identified could help to secure and enhance the FCO's existing Efficiency Savings Plan. We have reconciled the degree of overlap and calculated a revised, combined total that should be realised at the end of 2005/2006 of £65.8m, freeing up resources that can, potentially, be redeployed.
In addition to these numerical targets, we have made a number of observations about how work in the FCO is managed, the underlying cultural tone of consensus, which inhibits change, and the structural constraints on efficiency and effectiveness. Our conclusion is that the organisation is not well suited to managing change.
We have achieved all the success criteria identified at the outset of our work, but there is far more to do. We have only just begun to develop full options for change and to build consensus on the way forward. The FCO will need to adopt and practise stringent project management disciplines in order to achieve the very challenging targets ahead. Many changes will require imposition from senior managers who have properly delegated authority and the will to achieve a consensus.

32. The Collinson Grant report highlights what it suggests could be many possible savings over and above those already envisaged in the FCO's efficiency savings plans. However, it also states that the FCO has scaled back its own forecast of efficiency savings from £10.7 million to £6.3 million in 2004-05, and from £55.8 million to £32.7 million in 2005-06.[32] These figures do not tally with those presented in the FCO's Efficiency Technical Note (ETN) of November 2005.[33]

33. Before the ETN was published, we asked the FCO to explain the figures in the Collinson Grant report. In their response, the FCO told us that,

They then argued that Collinson Grant had double-counted some proposed savings and had used out-of-date figures in respect of others. The figures according to the FCO are that the forecast savings in 2004-05 were £4.7 million and the outturn £6.6 million; and the forecast for 2005-06 is £38.7 million, which the FCO is confident it will exceed.[35] If this is correct, we welcome this reassurance. However, we are somewhat alarmed that it was necessary. We are also mindful of Collinson Grant's complaints about lack of co-operation by some parts of the FCO and the possibility that they were not supplied with all the data they required.[36]

34. The admission by the FCO that resources were not devoted to adequately checking the report before it was presented to the Board is remarkable when set against the statement in the Departmental Report that "The Collinson Grant study is an integral part of the FCO reorganisation"[37] and Sir Michael Jay's evidence to us that he takes the report "extremely seriously".[38] It appears to back up the claim made by Collinson Grant that:

sic

If the Collinson Grant report contains errors that the FCO failed to check and correct then that is the FCO's fault. They could and should have challenged these errors with Collinson Grant, as is normal with consultants' reports, prior to final publication.

35. We are disappointed and concerned that the FCO apparently takes the view that, because a study costing hundreds of thousands of pounds and with potentially huge implications for the FCO's management of its resources was intended for internal consumption only, there was no need to ensure that it was error-free.

36. The Efficiency Technical Note states that at least £43 million will be released by savings made in the period to 2007-8, to be reinvested in the FCO's priority programmes, although these programmes are not listed.[40] In response to one of our written questions, the FCO confirmed that "efficiency savings and returns from the sale of FCO properties will be used to fund additional frontline activities in pursuit of the FCO's strategic priorities."[41] Like the Efficiency Technical Note, this response did not provide any information on what these additional frontline activities might be. We recommend that in its response to this Report the FCO list the additional frontline activities which are being funded by efficiency savings and asset sales, giving the amount of funding in respect of each such activity.

MANAGEMENT

37. Collinson Grant concluded that the FCO's managerial structure, with eleven layers between the Permanent Under-Secretary and the lowliest staff, is "too deep and too narrow."[42] Among many criticisms, their report suggests that this contributes to a slowness to act, a lack of delegation, avoidance of responsibility, unnecessary work being carried out, and over-supervision.

The report goes on to state that the effect of this is for work to be re-done repeatedly at different levels in the organisation; activity levels may be very high, but effectiveness is diminished.[44]

38. The consultants suggest that FCO managers "need to learn new skills and to adjust their approach."[45] In particular, they criticise the consensus culture of the FCO and the unwillingness of managers to criticise subordinates. "Multiple layers of managers also stifles the innovative, perceptive research and analysis that challenges established thinking. Brave new ideas rarely survive repeated filtering, but are desperately needed if the FCO is to become more effective."[46]

39. The report states that FCO managers lack the necessary tools to do their job effectively and that they have no incentive to reduce costs. It calls on the FCO to reduce the size of its human resources (HR) directorate: at present, there is one member of staff engaged in HR work per 20 employees; Collinson Grant suggest that it should be possible to halve this ratio, to 1:40.[47] They also propose a "comprehensive overhaul" of the directorate and "the injection of a number of experienced HR professionals." Speaking in November 2005, the FCO's Director of Human Resources, David Warren, told us that Collinson Grant had made a "perfectly fair point" about the size of the directorate and that its size would be reduced "by at least 100 positions over the course of the next six to seven months."[48]

40. We recommend that in its response to this Report the FCO provide further details of the restructuring of its Human Resources Directorate, including full information on the reduction in its size and of any consequences for performance of the HR function in the FCO.

LEADERSHIP

41. Collinson Grant also criticised the leadership of the FCO, which they see as weak and unwilling to make changes which do not have the full support of the organisation. They concluded that:

The leaders of the FCO focus primarily on their diplomatic and political duties, rarely on the efficient management of the organisation. There is a clear vision of Strategic Priorities, but the need for robust management to allow core duties to be conducted effectively is neither accepted nor properly understood. People are frustrated and impeded in the execution of critical tasks by the weaknesses of the organisation, yet are unwilling to tackle the root causes that are entrenched in and reinforced by the established culture. The entire organisation needs to be challenged and reformed, but the leadership lacks the skills needed and the will to upset the status quo.[

This is strong comment, which we invited Sir Michael to respond to. He reaffirmed his personal commitment to making "the kind of reforms and changes, including culture changes, which we now need to do if we are going to adapt to new circumstances." He then described in detail the steps the FCO has taken:

42. We welcome the FCO's commitment to changing aspects of its culture and to giving leadership and management skills their appropriate place in the organisation. We recommend that in its response to this Report the FCO set out how it intends to advance this agenda.

PROJECT MANAGEMENT

43. The consultants were particularly critical of the FCO's poor performance in project management. They concluded that few FCO managers have sufficient experience or training in the necessary skills and that this, when combined with the poor management structure and practices referred to above, meant that projects rarely meet their objectives within budget or on time: "Projects tend to drift, consuming resources without realising the required benefits. […] A radically different approach to project management will be needed if the potential [for improvements] is to be secured."[51]

44. We asked the FCO how it intends to rectify the lack of project management skills within its staff. Sir Michael Jay replied that a "dedicated Programme and Project Management team within Finance Directorate [is] responsible for policy in this field."[52] The team provides access to a range of relevant training courses. It is of some interest that Sir Michael's answer deals entirely with training as the method of addressing the skills in the FCO; nowhere is there any mention of importing skills from outside, by employing experienced professionals from other sectors. We accept that it is desirable and even necessary for senior FCO staff, in common with those elsewhere in the public sector, to acquire and to maintain project management skills, but we are surprised that there is apparently no intention on the part of FCO to recruit people with particularly well-developed skills in this area. We consider this point in relation to a wider range of professional skills below.[53]

FINANCIAL MANAGEMENT

45. The Collinson Grant report is critical of the FCO's resource management systems. The consultants suggest that the budgetary system lacks teeth and expenditure is based too much on precedent. Sir Michael Jay acknowledged that the report had "focused our attention on some new areas of work which we had not focused on sufficiently, like the need for further reform of the finance function, which we are now carrying out with the Treasury and the NAO."[54]

46. Collinson Grant noted that completion of the implementation of the new information system, Prism, should release resources for the FCO, but they also called for managers generally to spend less time dealing with routine financial tasks, and for members of the Finance Directorate to spend less time on non-financial tasks. "This, combined with radical reform of the purchase-to-pay procedures and other financial processes, would save significant effort both in the Finance Directorate and throughout the organisation."[55]

47. In the course of this Inquiry, we became aware of what the National Audit Office has described as "the largest identified loss by fraud in the Department's history",[56] and which had continued undetected for at least four years. In July 2004, it was discovered that the British Embassy in Tel Aviv, Israel had been defrauded of more than £790,000 by a locally-engaged employee. However, we did not learn of this from the FCO, even though we visited the Embassy concerned in November 2005. The fraud came to our notice only following publication of the report by the National Audit Office. This incident raises concerns both about the FCO's financial controls and its detection systems, and about the FCO's duty to inform the Committee charged with scrutinising its expenditure and administration. We raised these issues with the FCO, who in February 2006 sent us a copy of a paper dated November 2005, in which they set out the lessons learned from this and from other, unidentified, fraud incidents.[57] The paper sets out a number of sensible procedures and safeguards which should already have been in place at the Post in Tel Aviv and elsewhere. The Public Accounts Committee is now conducting a detailed scrutiny of the NAO report and will produce its own report in due course. We await that report with interest.

48. We conclude that the FCO failed seriously in its duty to the Committee in not informing the Committee about what the National Audit Office has described as "the largest identified loss by fraud in the Department's history" and about other frauds. We are extremely concerned that the Tel Aviv fraud continued undetected for at least four years as a result of weaknesses in financial control and involved clear breaches of long standing accounting procedures. We recommend that the FCO in its response to this Report set out the other significant frauds which have taken place in the last five years, and the specific steps it has taken to prevent any recurrence.

49. In its response to our written questions, the FCO described a new Prism-based reporting system—Oracle Financial Analyser—which will provide budget-holders in FCO managers with monthly financial management information.[58] The system is already in use at FCO headquarters in London, but its full implementation will have to await a successful introduction of Prism in Posts overseas.

50. We welcome the FCO's new focus on reform of its finance function. We recommend that in its response to this Report, the FCO provide a detailed explanation of the nature of these and related reforms and of the timescale for implementing them. We further recommend that in future the FCO inform this Committee promptly of any incident involving major fraud or financial mismanagement.

PERFORMANCE REVIEW

51. In his first appearance before our colleagues on the Public Administration Select Committee last October, the new Cabinet Secretary and Head of the Civil Service, Sir Gus O'Donnell, announced a series of performance reviews of Whitehall departments. Sir Gus described his initiative in the following terms:

In terms of policies, I talked to the Prime Minister about ensuring that we have proper Cabinet committee procedures for the various reform initiatives on health, education, welfare reform and the like, and that we ensure that the Civil Service provides good advice not just on policy but on how deliverable policy is. That is one particular area where I think we need to strengthen things. I wanted to mention this to the Committee today that I feel that we need to enhance central government departments' capability to deliver policies. As you know, the Prime Minister's Delivery Unit looks at delivery in the sense of achievement of PSA targets. What I want the Prime Minister's Delivery Unit to do is to enhance its role by looking at the capability of departments to deliver. The idea of this would be capability reviews run out of the Prime Ministers Delivery Unit but using external people as well—people like, for example, the private sector, the Audit Commission, people who have been good at these from the Audit Commission with experience of comprehensive performance assessments (CPAs), and use them to assess departments' capabilities on a range of functions like HR, finance, ability to run IT projects, with the idea that we would publish the results of the performance of departments in specific categories. […] The idea is that we would do these reviews and with external input publish the results and then there will be an action plan to ensure that the permanent secretary and I were happy about and agreed on what the steps forward were, and I would then hold the permanent secretary to account for improvements in that department. I have put this idea to my permanent secretary colleagues and to the Prime Minister and received enthusiastic support so I am pleased to say that everybody is behind this and we will now start to consult on how to do it, with a view to getting the first pilot departments around December or January.[

The Government announced in December that the reviews will be carried out under the direction of the Head of the Prime Minister's Delivery Unit (PMDU), Ian Watmore.[60]

52. We note from the published minutes of the meeting of the FCO Board held on 5 December 2005 that it appears that the FCO is to be one of the first Whitehall departments to be scrutinised under the new arrangements.[61] We find this significant, especially given how recently the Collinson Grant review was carried out. We recommend that the FCO keep this Committee informed of the progress of the 'capability to deliver' review being carried out by the Prime Minister's Delivery Unit and, in due course, of its results.

Staff

The need for professional skills

53. The FCO employs over 6,000 people in the United Kingdom and overseas, most of whom are generalists but many of whom are working in specialist roles.[62] The Foreign Affairs Committee and the FCO have previously exchanged views on the lack of staff with appropriate specialist skills. In the most recent such exchange, the FCO told the Committee that:

We did not find this response reassuring. It suggested a reluctance on the part of the FCO to recruit from outside the organisation. Our unease increased when we saw the conclusions of the Collinson Grant report, that the FCO still lacks staff with appropriate skills in the project management, finance and human resources fields.[64] According to the report, "Employees are seen as generalists, so that a lack of professional competence or experience in (say) finance or HR (or even in specific political or diplomatic skills) is accepted, even where it acts as a significant drag on the effectiveness of a department."[65]

54. A member of the Committee tabled parliamentary questions to a number of government departments, asking Ministers to list the professional qualifications and experience of their human resources, finance and estates directors.[66] The results are collated below:

It can be seen that, when compared with other government departments, the FCO has, literally, an amateurish approach to filling some of its senior posts. In particular, the FCO is one of only two departments among those surveyed with a finance director who does not hold a relevant specialist qualification and it is the only department whose director of human resources lacks such a qualification. We have previously drawn attention to the need for a more professional approach to all these specialist functions—particularly to management of the overseas estate, in the light of the poor decisions taken by the FCO's Estates Strategy Unit on the sales of residences in Dublin and in New York.[67]

55. We raised with Sir Michael Jay the question of whether certain post-holders should have a relevant professional qualification or outside experience when he appeared before us in November 2005. Sir Michael defended the practice of posting experienced diplomats to very senior administrative roles, pointing out that those currently in post had had some relevant previous experience within (and, in one case, outside) government, that their deputies or assistants are in many cases professionally qualified, and that running a large Embassy is in some respects not unlike running a business.[68] He also reminded us that the FCO has signed up to the Civil Service's Professional Skills for Government agenda, which means that,

Finally, Sir Michael informed us that it will increasingly be the case that senior positions in the FCO are filled by open competition.[70]

56. The FCO may be moving slowly towards the practice which most other government departments appear already to have adopted, of recruiting well-qualified people with outside experience to fill some of the more senior specialist roles. Sir Michael confirmed that in seeking such a development the Committee is pushing at an open door, then added, rather ominously, "but the speed at which the door opens is something over which we have to have some control."[71] We expect to see the door open without delay.

57. We conclude that the FCO needs to catch up with the rest of Whitehall, by recruiting professionally qualified, experienced people to the top roles in finance, human resources and estate management. We recommend that it do so without delay.

EFFICIENCY MEASURES DIRECTLY AFFECTING STAFF

58. Collinson Grant claimed to have identified 533 posts in the United Kingdom, 427 posts overseas filled by United Kingdom-based staff and 307 posts overseas filled by locally-engaged staff which could be cut, producing an annual saving of over £66 million from the end of 2005.[72] The FCO's own Efficiency Technical Note, produced some months after the Collinson Grant Report, proposes a reduction in the UK-based staff pay-bill of £5 million in 2005-06, rising to £15 million in 2007-08.[73] Its projected figure for additional cashable savings on UK-based staff posted overseas is £1 million in 2005-06, rising to £6 million in 2007-08; this will be achieved by a mixture of reductions in numbers and changes to conditions of service.[74] By "refocusing" the work of its locally-engaged staff, the FCO hopes to save another £2 million in 2005-06, and twice that in 2007-08.[75] At the same time as reducing staffing numbers, the FCO also aspires to cut its overtime costs by £1 million in 2007-08.[76]

59. Taken together, the FCO's savings targets are very modest when set against those proposed by Collinson Grant. Neither is Collinson Grant the first to suggest that more substantial savings might be made: a previous study by KPMG suggested that the Finance Directorate alone could save 10% of its budget by cutting "non-critical functions" and reducing routine processing.[77]

60. In response to a written question from us, the FCO confirmed that it has identified over 60 jobs in its senior management structure to be cut or downgraded over the current planning period, 2004-07.[78] It has also (as at November 2005) accepted 283 applications from staff for early retirement or severance, as part of its contribution to overall staff savings of 310 required under the 2004 Spending Review. However, in response to our question, how many of the jobs vacated by those taking early retirement or severance will be refilled, the FCO told us that due to the frequent rotation of staff, "There will no exact match between staff departures and job reductions."[79] We recommend that in its response to this Report, the FCO list the senior management jobs which will be cut or downgraded during the SR04 period, and that it state the net increase or reduction in staff numbers that it expects to result from this exercise.

61. Not all job cuts will be among senior management, most of whom are able to obtain generous severance terms. In its response to the Committee's Report on its 2003-04 Departmental Report, the FCO suggested total cuts needed to be in the order of 350-400 posts, most of which could be achieved through natural turnover and early retirement.[80] As a responsible employer, the FCO has a duty of care to these people. The FCO told our predecessors that those leaving its employment had access to advice on retirement and re-employment options from its 'PROSPER' group, but gave no details. We recommend that in its response to this Report the FCO provide full information on the work of its PROSPER group.

Prism

62. In common with many large organisations, the FCO needs to be able to generate, process, store and access key financial and other management data, to enable its managers to take well-founded decisions and to be effective administrators. The FCO's chosen vehicle for achieving this purpose is known as Prism. Prism is not 'just' an information technology package; it entails changes in management practice and in working practice. Practically nobody who works for the FCO, including those working in its overseas Posts, will be untouched by the changes embodied in the project. Unfortunately, Prism has gone wrong.

63. To understand what has gone wrong with Prism, it is important to realise the enormous scale of the project. Prism is intended to replace 30 separate existing systems. New software and hardware has to be installed, and new working practices introduced, not only at each Post but throughout the London and Milton Keynes FCO estates. The staff training requirements for this project are huge. It is disappointing, but not surprising, that this important project is substantially behind time.

64. In the overseas Posts where Prism has been implemented, there has been great dissatisfaction. FCO staff publications have received anguished letters for publication. Here is one example: "in the FCO's long history of ineptly implemented IT initiatives, Prism is the most badly-designed, ill-considered one of the lot."[81] Such letters give only a hint of the true scale of anger in the 'ranks'; anyone who has visited a Post where Prism has been 'rolled out' knows that many staff are at their wits' end about it.

65. The message that there was something wrong with Prism got through to the FCO Board, who tasked a senior diplomat, Norman Ling, "to draw lessons from the Prism experience."[82] Mr Ling produced his report in June 2005. He did not pull his punches. This is an edited version of his summary of what went wrong:

Planning and Resources

Risk

Benefits

Professionalisation

Governance, change and communications - the role of the FCO Board

Security

66. The Ling report must have been hugely embarrassing, not only for the project's managers but for the FCO Board, who had failed to become sufficiently engaged with it. And this was despite the debacle of just a few years earlier over the abortive Focus project, which was intended to achieve some of the same goals as Prism. It is also worth noting that some of Mr Ling's conclusions echo those of the Collinson Grant team—for example, the lack of specialist skills, the unwillingness to accept risk, and the resistance to change.

67. Mr Ling backed up his analysis of what went wrong with a set of recommendations for action. All 26 unclassified recommendations have been published.[84] However, we note with some concern that the scope of Prism is understood to include the Secret Intelligence Service as well as the FCO. These are some of the more significant recommendations:

The FCO should only appoint programme managers who have the requisite skills and experience for the job or who are assisted by someone with those qualities.
The FCO Board should appoint a Director General as Senior Responsible Owner (SRO) for large, high risk programmes.
The FCO Board should strengthen its capacity to oversee IT enabled change management programmes.
The FCO should recognise project management as a core skill.
The Business Systems Team (BST), the FCO's designated centre of excellence for programme and project management, should be given more powers of oversight to ensure best practice is observed.
The FCO must allow the health of the programme to dictate the pace of implementation. Health checks should include more robust Gateway reviews and closer questioning of the consultant and the contractor.
The FCO should establish more substantial relationships with contractors on future programmes. This should include regular contact at Board level.
The FCO should make a realistic assessment of the staff it can make available before the start of any programme. If there is a shortfall in the numbers or the requisite skills, it should hire the extra people it needs, either in its own right or through the contractor.
Major IT enabled change programmes require an effective communications strategy. The FCO Board should monitor the effectiveness of the strategy closely.
Training and other forms of support for users should be seen as a fundamental element in the success of any IT-enabled change management programme.
SROs should ensure that new working arrangements such as hub and spoke are tested, agreed and implemented in advance of global roll out.
The SRO should ensure there is a full re-assessment of the business case and thus the benefits of the programme at each Gateway review. In the case of high risk/business critical programmes, the SRO should get FCO Board approval of the business case before moving to the next stage of the programme.

Again, there is a strong degree of correlation between these recommendations and some of those made in the Collinson Grant report.

68. We asked the FCO, what action it has taken in respect of each of the 26 unclassified recommendations. In a letter to our Chairman, Sir Michael Jay wrote that:

We are disappointed that the FCO responded with this general statement, rather than provide information in respect of each of the recommendations, as we had requested. We reiterate our desire for a specific and detailed response in respect of each of the 26 unclassified recommendations.

69. We conclude that the Ling report has exposed a woeful lack of professional skills and a disturbing series of failings in senior FCO management. We welcome acceptance of the conclusions of the report and we recommend that the FCO Board remain fully seized of the need to implement them. We further recommend that the FCO keep this Committee fully informed of the state of play on progress with putting each of the Ling report's recommendations into practice; that it provide us with updates on the continuing implementation of Prism; and that it supply us with copies of Gateway reviews of further large, high-risk programmes.

70. The FCO's Departmental Investment Strategy 2004-07 states that Prism "will improve the financial, personnel and procurement information available to FCO decision-makers, enabling them to improve resource and personnel management and achieve procurement savings."[86] Due to the problems already described with the programme, these improvements are yet to be realised. In the short-term, difficulties with Prism have also caused delays in the process of signing-off the FCO's Resource Accounts.[87]

71. It appears that the poor performance and late introduction of Prism may also be the cause of the FCO's position at the bottom of the league table of 46 government departments' timeliness in paying bills. According to official statistics published by the Department for Trade and Industry in November 2005, the FCO paid only 68% of its invoices on time in 2004-05.[88] The next-worst performing department, the Northern Ireland Office, paid over 85% of invoices on time, and the average across Government was just over 97%.

72. Undue delay in paying bills is unacceptable, regardless of who is the supplier or contractor. However, we feel the FCO has a special duty when it comes to paying the bills of individual contractors, small businesses and retailers, whether they be in the United Kingdom or abroad. Additionally, delay in paying bills overseas can be a source of considerable embarrassment to diplomatic staff in overseas missions. The Secretary of State for Trade and Industry, Alan Johnson MP, told the House that "The Government take this issue very seriously."[89] So do we. We recommend that in its response to this Report the FCO set out how it proposes to achieve its targets for prompt payment of invoices.

Other IT projects

73. The Departmental Report for 2004-05 lists 20 overseas Posts which now accept on-line applications for visas for entry to the United Kingdom.[90] The FCO later informed us of a further five Posts which now offer this facility, and told us that others are being added.[91] According to the FCO, "take-up of this service continues at a steady pace."[92] In principle, we welcome the efficiency gains which this service ought to provide, and the comparative ease of use for applicants who may live some distance from a visa-issuing centre. We would, however, welcome further information. We recommend that in its response to this report the FCO provide full information on how refusal and fraud rates for on-line visa applications compare with those for conventional applications.

74. The FCO has also been replacing its desktop IT system, known as Firecrest. The Future Firecrest programme is scheduled to be completed in 2012.[93] The FCO told us that "Recent changes in central government technical security policy have required some re-design of the system, which may impact on both the timetable and budget. This impact is still being assessed, but it is expected to have no significant impact on the capability of the project to meet its objectives."[94] It is crucial to the success and efficiency of the FCO that the new system works no less well than the first-phase Firecrest system, and we intend to monitor its progress.

'Rationalising' the home estate

75. The FCO operates a number of buildings in London, including its main Whitehall accommodation at King Charles Street and the Old Admiralty Building, and the UKVisas building on the Albert Embankment. A further 1,100 staff are based at Hanslope Park, near Milton Keynes.[95] Another 450 staff are being transferred to Hanslope Park; this, together with 'rationalising' the central London estate by locating all London staff in the two main buildings, is expected to generate savings of about £1.1 million in 2007-08.[96]

76. Two very prominent and historic buildings in central London are leased by home departments on behalf of the FCO, who pay the costs: 1, Carlton Gardens, and Lancaster House. Negotiations on a new lease for the former property, effective from 1 April 2005, were still ongoing as we carried out this inquiry.[97] The lease on Lancaster House expires in July 2007. Both properties are used in support of the FCOs diplomatic work.

77. The FCO also rents various premises in London and elsewhere. Wiston House, which is used by the Wilton Park agency for conferences, cost £94,000 in rent in 2004-05. The total FCO bill for rental charges in the United Kingdom that year was £1,540,374.[98] Any potential for efficiency savings is, therefore, modest.

Reinvesting efficiency savings

78. Under Treasury classifications which apply to public expenditure by government departments, spending may be classified as either administrative or programme expenditure. We note that 43% of the FCO's expenditure is classified as administrative.[99] This is an abnormally high figure for a Whitehall department.[100] We are also aware that the Treasury has encouraged departments to reclassify expenditure as programme, so that programme savings can be reinvested across a wider range of services.[101] When he gave oral evidence, Sir Michael Jay noted that he is not allowed to transfer resources from programme to administrative expenditure—for example, to keep open an Embassy threatened with closure.[102]

79. We therefore asked the FCO, what work it has done to identify those parts of its administrative expenditure that could be reclassified as programme expenditure. The FCO replied that it had already discussed this with the Treasury as part of the 2004 Spending Review, but that the Treasury had only agreed to the reclassification of consular and visa work.[103] It is not clear whether responsibility for the failure to reclassify more expenditure rests with the FCO—because it has not made a sufficiently strong case—or the Treasury is being obstructive. The FCO has expressed the hope that it will be possible for this issue to be reconsidered in the context of the forthcoming Comprehensive Spending Review.[104] We support the FCO's efforts to reclassify more of its expenditure on front-line services as programme rather than administrative expenditure and we recommend that it present a strong case to the Treasury for making this change.

Conclusion: the FCO's response to Collinson Grant

80. The Collinson Grant Report was commissioned by the FCO's Director General (Corporate Affairs), Dickie Stagg. Commenting on the lack of enthusiasm which the process had encountered among some of his colleagues, Mr Stagg told us that "it is inevitable that, if you bring in people who are clearly seen as being something of a threat to the status quo, there are people who are unenthusiastic about that process."[105] Sir Michael Jay, however, assured us that he and his colleagues on the Board took their duty to consider the report's findings "extremely seriously".[106] The FCO told us what it has been doing to implement the report's findings:

The FCO Board considered the Collinson Grant report at its meeting on 28 January 2005. It re-committed itself to achieving the £87 million target and agreed to incorporate the Collinson Grant work as far as possible into the FCO's existing Efficiency Plan. In addition, based on the findings, the Board agreed to review the Finance function in the FCO, both in London and overseas; identify resources that could be reallocated from low to high priority activity using the Collinson Grant comparative analysis of expenditure; and monitor, at Board level, the FCO's efforts to re-prioritise resources. The Board does not accept that the FCO lacks appropriate political and diplomatic skills.

Since the Board decisions a number of actions have been taken to deliver the efficiency targets. These include: substituting locally engaged for some UK-based staff; rationalising the various change programmes in the FCO; reducing the number of people in the Corporate pool; improving the workings of the internal market; and reducing administrative costs. Work on the finance function will be taken forward in the light of the Treasury and NAO review […]

107

81. The FCO's response to Collinson Grant is defensive and may not convey the full extent to which the consultants' conclusions were either anticipated or taken on board. When he appeared before us, the Permanent Under-Secretary was robust in his defence of the institution he heads:

108

Later in the same session, however, Sir Michael agreed that there needs to be fundamental change in the FCO:

109

At our invitation, Sir Michael later supplied us with a more detailed critique of the Collinson Grant report.[110] We also invited him to identify those parts of the report that he does not accept, or that he regards as unfair comment.[111]

82. Closely paraphrasing his oral evidence, Sir Michael wrote that "I accept many of the conclusions but not all of the analysis […] I do not accept the root and branch criticism of the FCO. […] I reject the proposition that the FCO lacks the necessary core diplomatic and political skills"[112] In his letter, Sir Michael goes on to state that the FCO believes "some" of the recommendations made by Collinson Grant to be "ill-founded" but he does not identify which recommendations these are. Instead, one example is given: a recommendation to reduce the resource deployed on briefing Members of Parliament and businesses. We have scoured the Collinson Grant report for this recommendation, but have been unable to find it. Possibly, it is based on an unpublished list of "certain high-profile activities" that the FCO itself has identified as those that could be curtailed or even discontinued completely.[113]

83. We can only conclude from this that Sir Michael is part of the problem. Under his stewardship, the report was originally suppressed. It criticised the management he was supposed to lead. He acquiesced in a situation where some senior managers failed to collaborate with Collinson Grant's proper inquiries. His senior managers did not contest or seek to correct prior to publication errors which they now allege are contained in the Collinson Grant report. When asked what he deems to be "ill founded" in the recommendations of Collinson Grant, he failed to give a specific example. This is all wholly unacceptable from a Permanent Under-Secretary.

84. We had every expectation, having invited the Permanent Under-Secretary to tell us which parts of the Collinson Grant report he disagrees with, or regards as unfair, that we would receive a lengthy and well-referenced list. Instead, we received a general comment, supported by a single, somewhat gratuitous reference to one aspect of the FCO's work. We recommend that in its response to this Report the FCO identify all those observations, conclusions and recommendations in the Collinson Grant report that it does not accept, in each case with a full explanation. We also recommend that the FCO state in that reponse what stage it has reached in implementing each recommendation in the report that it does accept. We further recommend that the FCO publish in its response the list of activities classified as red, amber or green, which is referred to in the report.

85. We congratulate FCO managers on their decision to invite external consultants to carry out a study of their efficiency, effectiveness and control of costs, although we have concerns about the lack of thoroughness with which the review was carried out and about the lack of seriousness with which the FCO regarded and appears still to regard the project. We conclude that, having commissioned the study, the FCO must deal with it seriously: this suggests that the FCO should change some of its management practices and its efficiency savings targets or it should defend and justify them, explaining where and how the consultants are mistaken in their conclusions. So far, we have seen no evidence that it is succeeding in doing either.

30 Collinson Grant Limited, Efficiency, effectiveness and the control of costs in the Foreign and Commonwealth Office: Phase 2-Analysis and the development of opportunities for change, 14 January 2005, see www.fco.gov.uk Back

31 Ibid, Appendix 1 Back

32 Collinson Grant Limited, Efficiency, effectiveness and the control of costs in the Foreign and Commonwealth Office: Phase 2-Analysis and the development of opportunities for change, 14 January 2005, p 28 Back

33 Foreign and Commonwealth Office, Efficiency Technical Note, see www.fco.gov.uk Back

34 Ev 45 Back

35 Ibid Back

36 Collinson Grant Limited, Efficiency, effectiveness and the control of costs in the Foreign and Commonwealth Office: Phase 2-Analysis and the development of opportunities for change, 14 January 2005, pp 4 and 5 Back

37 Foreign & Commonwealth Office, Foreign and Commonwealth Office Departmental Report 1 April 2004-31 March 2005, Cm 6533, June 2005, p199 Back

38 Q 16 Back

39 Collinson Grant Limited, Efficiency, effectiveness and the control of costs in the Foreign and Commonwealth Office: Phase 2-Analysis and the development of opportunities for change, 14 January 2005, p 5 Back

40 Foreign and Commonwealth Office, Efficiency Technical Note, see www.fco.gov.uk Back

41 Ev 7 Back